Mark Carney highlights renewed risks in BoE shake-up

Governor aims to be prepared for future shocks and avoid another financial
crisis

Mark Carney has unveiled a series of “transformative” changes at the Bank of England that he said would help Britain to avoid a repeat of the 2008 financial crisis.

The Bank’s Governor warned that the UK faced renewed dangers from excessive borrowing and that streamlining the Bank’s monetary policy and macro-prudential divisions could help it to moderate future risks.

Low interest rates had “contributed to the gradual build-up of financial vulnerabilities in the past”, he said. “It doesn’t take a genius to see that similar risks exist today.”

In a major shake-up, Mr Carney said the Bank would:

• Appoint Ben Broadbent as deputy governor for monetary policy and Nemat “Minouche” Shafik in the new role of deputy governor for markets and banking.

Mr Carney said that the measures - which follow a six-month review - would enforce the Bank’s aim to maintain “stable and predictable inflation [and] strong, sustainable and balanced growth.” He added that a narrow focus on inflation in the past had been “fatally flawed”.

Mr Carney said steps outlined on Tuesday would help to ensure the Bank was better prepared for future shocks.

“In terms of the credit cycle and credit crisis, certainly if we knew then what we knew today, and had the powers and organisational structures that we’re putting in place ... we could have moved maybe towards Canadian outcomes [which was largely shielded from the most damaging effects of the crisis], with less of the severe tail that we’ve experienced over the last five years,” he said.

Mr Broadbent, a former Goldman Sachs economist, joined the Monetary Policy Committee as an external member in 2011. He will replace Charlie Bean, who retires at the end of June.

Egyptian-born Ms Shafik, a current deputy director of the International Monetary Fund, joins on August 1 and will replace Paul Fisher on the MPC. Andy Haldane, dubbed a rising star at the Bank, will also join the MPC, replacing Spencer Dale, its current chief economist.

Adam Posen, a former MPC member, said: “A shake-up is probably overdue at the Bank of England, the Federal Reserve and other central banks, which sat tight and oversaw the bubble and busts of the 2000s and now need to really rethink.

“If you’re a large organisation and have new responsibilities like the Bank of England does, it needs to do this to be taken seriously.”

Despite Mr Carney’s warnings, he said the Bank would not rush to deal with risks related to a strengthening housing market. “We shouldn’t be trigger happy. We have the tools, we’re well armed to address those risks,” he said.

Tuesday’s announcement follows a “value for money review” conducted at the Bank which it said would result in 100 job losses.

The Bank said the measures outlined on Tuesday would not result in any fresh cuts.